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YIN AND YANG THE EQUAL-AND-OPPOSITE FOREX TRADE STRATEGY
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Forex traders take note: These equal-and-opposite patterns show up fre quently in the currency pairs as well as in cross-currency markets. We see periods of low volatility between the European and the U.S. sessions; and, as a result, sideways channels form, otherwise known as a longer-term in traday consolidation period.

Oftentimes, we see false breakdowns and breakouts that create the equal-and-opposite (yin and yang) formations. We, therefore, have a trigger to enter a position if the market price is near an important pivot point sup port level. We would buy on the close of the second candle's time period or the immediate opening of the next time frame. Place a stop at least 10 PIPs (percentage in points) beneath the lowest low point. You should see immediate results as the markets move higher. Adjust your stop accordingly.

Figure 3.22 is a 60-minute chart on the euro currency versus the U.S. dollar on July 19, 2006 . The exact low occurred at 9:00 A . M . (EST) and was not prompted by any special report. That morning the German Producer Price Index (PPI) came out, but at 2:00 A . M . (EST). Two U.S. economic numbers—housing starts and real earnings—were released; but those reports were released at 8:30 A . M . (EST), one and a half hours earlier. The dollar got pummeled as U.S. traders started to digest the news. It seems to hap pen at times that there is a delayed reaction to the economic reports. But looking at the false breakdown of the low of the range that was created in the prior 22 hours of trading shows that an equal-and-opposite candle formed, and it was at that time that the buy programs kicked in as a very powerful reversal took place. In fact, the majority of the move on this 60 minute chart took place in 10 minutes. The market ruthlessly exploded and increased in value over 90 PIPs in just 10 minutes. The 60-minute chart showed an equal-and-opposite pattern.

Basically the market went hunting for stops as it broke the low, and shorts covered as the market reversed like a rocket. You need to look for these opportunities because the price action in the forex market behaves like this on a frequent basis. This is a classic failed-pattern breakdown. Traders saw the market making newer lows as prices broke below the low; and when there was absolutely no follow-through, it had a slingshot effect in the opposite direction. This was an ironclad bear trap. By following the rules on equal-and-opposite patterns, especially when a setup fails to ma terialize, such as a breakdown of support, this is a powerful signal to take a long position. We exercise prudent risk-management techniques placing a stop 10 PIPs below the lowest low point; and as the trade progresses, you can adjust your stop or look to exit if the market gives you a windfall profit that is equal to or exceeds the normal daily range.

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